Overview

"The "Principled Societies" concept outlined in the book Creating Sustainable Societies is a blueprint for sustainable financial, economic, and governance systems, intended for local implementation. The book starts by pinpointing the central problems within our financial, economic, and governance systems that have lead to high unemployment, massive debt, environmental degradation, mistrust of Congress and big business, and hyper-inequities of wealth and political power. It then proposes a practical, bold plan for addressing these concerns and creating meaningful change.

Rather than a call to transform society from the top down, the strategy calls for transformation from the bottom up. The book describes a technology that would allow new, sustainable financial, economic, and governance systems to be implemented at the local level. Involvement occurs via Principled Societies, special types of volunteer membership organizations. A Principled Society acts as a booster for local economic development and engagement in democratic self-governance. It is designed to produce tangible social and economic benefits for its members and all people within the local community.

The operational infrastructure of a Principled Society is a Web-based software system that will be developed by the open-source community in conjunction with interested academics and other social leaders. The software acts as a transaction and accounting system for a proposed local currency, facilitates self-governance via collaborative direct democracy, and serves as a hub for community organizing and communications. Through use of the system, members support local businesses, provide startup funds for new socially-responsible businesses, and generate revenue for local schools, nonprofits, and social service organizations."

Excerpts

From the Foreword, by Bernard Lietaer:

"I have spent the past 30 years studying monetary systems, both conventional and innovative. During this time, I have written more than a dozen books, have spoken to thousands of audiences around the world, and have taught in half a dozen universities in the United States and Europe. Everywhere, I find dissatisfaction and hunger for a breakthrough to another way of working, of cooperating, of contributing. People are eager for change and are awake to the need for change, even if most public officials, constrained by politics or timidity, appear incapable of rising to the challenges of our time.

In distilling the results of my investigations, I arrived at the sad conclusion that the missing piece in all our monetary arrangements is appropriate governance. This is true for both the official money system (the Federal Reserve and all other central banks in the world) and innovative systems of complementary currencies. This missing piece is what John Boik brings to the table. At first glance, his proposal might appear to center on a complementary currency system, but more accurately it centers on appropriate governance. On the one hand, it proposes a means for collaborative direct democracy as applied to finance, corporate behavior, and social organization: the “Principled Society.” On the other, the very mechanics of the proposed monetary and corporate model, including its transparency, are a manifestation of democratic ideals."

Strategy

John Boik:

"Many see the need for transformation, but the best means to achieve it is still open to discussion. Some advocate the top-down path, which calls for citizens to regain control of Congress, wresting it away from big business and other special interests. Many in the Tea Party, the Occupy Wall Street movement, and in between are natural allies here, even if they differ on some social issues. Change would involve reforming election finance laws and restricting lobbying activities, not to mention changing banking and investment regulations and pressing government at all levels for greater transparency. All of this is indispensable work. But the top-down path is not the focus of this book.

It would be almost impossible to replace financial, economic, and governance systems with better structures through the top-down pathway. Drastic change would be too risky for the nation, too abrupt, and too chaotic. And it would be politically unfeasible; the push-back would be ferocious. The surest way to bring about core structural change is to demonstrate it voluntarily at the local level, in a subset of the population. This is the bottom-up path. For this, no new legislation is needed. If we can successfully demonstrate tangible economic and social benefits of new systems at the local level, then in time the concepts will spill over into society as a whole.

The central strategy examined in this book is to implement new financial, economic, and governance systems at the local level, managed through an online software application. The application would facilitate, for example, business and financial transactions, and rule-making and other aspects of self-governance.

It would be the world's first comprehensive Internet project aimed at a fundamental transformation of society. Think of it as components of Facebook, Kiva, Quicken, RocketHub, KickStarter, LendingClub, MindTools, Groupon, LinkedIn, Innocentive, and more, all integrated into a single application developed and managed by users. Its purpose is to stimulate local economies, demonstrate direct democracy, and maximize the common good. In short, it is the maturing of social media into a powerful, user-created, agent of change.

The code for this application would be developed by the open-source community, and as such would be a publicly shared resource. Programmers, writers, graphic designers, and other volunteers nationwide and beyond would be invited to participate in its development. Although the development project itself would occur nationally, the actual implementations would occur at the local level. Once the code is available and thoroughly tested, perhaps via large game simulations, people in each metro region would be encouraged to form a Principled Society---a special type of corporation that would demonstrate the new systems and manage the local software application.

As envisioned, a Principled Society is a membership organization. Other well-known membership organizations include AARP, the National Organization for Women, and your local Chamber of Commerce. Unlike these, however, a Principled Society is not a nonprofit. Nor is it a profit-maximizing corporation. It is a socially responsible corporation that is a blend of both. Like a nonprofit, it seeks to maximize the public good. Like a for-profit, it does not rely on charity for funding its ongoing operations and expansion. A Principled Society is managed by its members through collaborative direct democracy. As such, a Principled Society is its members. It is an association of people who choose to cooperate.

Quite likely, only a small percentage of the population in a given metro area will decide to become members of a Society, but that is not a problem. In fact, it is an advantage. Demonstrating new financial, economic, and governance systems would be easier in a small subset of the population. The target is to achieve a participation rate of 10 percent. This would be enough to produce substantial economic impacts and provide a solid test of the new systems.

While successful demonstration of new systems in a small subset is not by itself sufficient to transform society as a whole, it is a crucial and dramatic first step. Thus, this book is concerned with Phase I---getting Principled Societies up and running. If all goes well, over time Phase I will naturally turn into Phase II - wider implementation of the new systems and a more complete transformation."

Framework of a Principled Society

"A Principled Society is envisioned as a local entity, but its core elements would be designed to overcome several major weaknesses seen at the national level. In this way, Principled Societies would be extensible to wider implementation in the future. The proposed framework consists of three core elements:

1. A new type of local currency system, called a Token Exchange System. Tokens are an electronic form of currency that circulates within a Society, in conjunction with the dollar. They are used by businesses and individuals to purchase goods and services, as well as fund local development and community services.

2. A new type of socially responsible corporation, called a Principled Business. A Principled Business is a cross between a nonprofit and a for-profit corporation. Like a nonprofit, it fulfills a social mission. Like a for-profit, it is self-sustaining and does not rely on donations. Principled Businesses compete with one another for interest-free loans offered by a Society. They coexist alongside standard businesses.

3. A new type of governance system based on collaborative direct democracy, called a Collaborative Governance System. Members collaborate in the creative problem-solving process of developing new rules. In a Principled Society, members are the legislature. For efficiency, councils would execute day-to-day operations and make minor decisions. Major issues would be decided by the entire membership in a user-friendly, efficient, online process.

The Internet application that would act as the infrastructure for a Principled Society is both practical and technologically achievable. It could be developed as a no-frills initial version perhaps with three to ten years of effort, given adequate funding and community energy. Each year thereafter, further enhancements could follow.

Although this book proposes a blueprint for new financial, economic, and governance systems, that blueprint is only a rough draft. Many questions are left unanswered. It is intended as a basis for further discussion and refinement. The bulk of development will fall to the wider community. Especially it will fall to potential users, including interested lay persons, programmers, and business and community leaders. Academic experts from fields as diverse as computer science, political science, statistics, sociology, law, ecology, business, psychology, and linguistics are encouraged to play a central role."

The Token Exchange System

"...the Token Exchange System [is the] the first core element of the Principled Societies framework. This finance system has its own currency, called tokens, which circulate within a metro region. Tokens are used as a complement to the dollar, not as an alternative. The token system provides a structured means to stimulate local business investment, fund social services, and give a community more control over its destiny. The new currency is, in a real sense, a manifestation of a community's faith in itself and its desires for a better world.

...

The Token Exchange System is different from other existing or historical complementary currency systems. It is electronic (unlike BerkShares or Ithaca HOURS); it is centrally managed (unlike bitcoin); it employs demurrage (unlike all of the above); and it is not based on labor hours (like Time Bank). And unlike all others, it is a full-fledged financial system, designed to fund business activity and social services, that could be scaled for use by millions. It is integrated into the economic and governance systems of a Society, and as well is designed to decentralize financial and political power. Lastly, it employs a wide spectrum of motivational factors to achieve cooperation among users."

The Principled Business Model

"The second core element in the Principled Societies framework is the Principled Businesses model. A Principled Business is a type of socially responsible entity that members of a Principled Society create and fund. Not every business that a Society creates or funds will be a Principled Business; many will be standard corporations, partnerships, and sole proprietorships. The Principled Business model is designed to appeal to those entrepreneurs and groups who might otherwise desire to start a nonprofit, but who also want to own their business and compete in the marketplace for self-sustaining revenues. The Principled Business model is a cross between, and offers the best of, the nonprofit and for-profit models.

A true partnership exists between members of a Society, who benefit from the activity of Principled Businesses, and the businesses themselves, which rely on member support and loyalty. It is an ongoing interaction that requires communication and goodwill. The task is to design the model so that expectations are clear, activities can be verified, goals are shared, penalties are understood, and healthy relationships are fostered.
...

...the proposed criteria of a Principled Business are listed below. As with the term “Principled Society”, the term “Principled Business” is not intended to imply that other forms of organization are unprincipled. Rather, it refers to a specific type of business that meets the following criteria:

1. The actions of a Principled Business are consistent with its social mission.

2. A Principled Business is designed to attain financial and economic sustainability.

3. Investors do not profit from a Principled Business.

4. Revenues are used in accordance with the submitted business plan.

5. The firm adheres to basic environmental stewardship practices, as demonstrated through certification with an approved third party.

6. The firm operates in a transparent fashion. Financial data that 501(c)3 nonprofits and publicly traded corporations must disclose are made public. In addition, funding sources and statistics on the distribution of compensation are revealed. Measurements of externalized costs and social and environmental impact are disclosed, where these can be practically and economically obtained.

7. The firm adheres to a conflict-of-interest policy. Board members having financial or familial conflicts of interest must recuse themselves from decisions where such a conflict exists.

8. Upon dissolution and after payment of creditors, the firm must transfer any remaining assets to nonprofit charities or to Principled Businesses in which no board member has a conflict of interest. Determinations made by a bankruptcy court take precedence. Further, Principled Businesses cannot be sold or given to an entity that is not a Principled Business.

9. The firm cannot fund other businesses that are not Principled Businesses. It can wholly purchase other businesses, as long as the combined entity continues to act as a Principled Business.

10. The firm cannot spend money to influence elections or legislation, unless that purpose is detailed and justified in the business plan. Any such expenditures are fully transparent.

11. The firm compensates its highest- and lowest-paid employees at a ratio less than or equal to a maximal one set by the Society, for example, 20:1. "

The Collaborative Governance System

"The third and last core element in the Principled Societies framework is the Collaborative Governance System. Its purpose is to foster a form of democratic self-governance that involves all members of a Society in the creative, collaborative problem-solving process. The proposal is bold. It is among the first to incorporate online mass collaboration into a self-governance process.

There are two primary reasons why a Principled Society would want to engage its full membership in decision making. First, the strength and vitality of a Society derives from its cohesiveness---the degree to which members want to be members. A Society is a corporation that sells a product. That product is a better community, greater economic security, heightened political empowerment, and other aspects of increased shared wealth. If it delivers these, it will achieve a loyal and spirited following. But it can't do this if it limits decision-making power to a small minority.

The second reason to engage the full membership is that every individual can be a source of creativity and wisdom. A Society can tap the experience, skills, and ideas of all its members when it tries to solve a problem. The modern term for this is crowdsolving. Netflix famously used crowdsolving in 2009 to improve the algorithm by which it predicts the movies a particular customer might enjoy. Rather than hire engineers and statisticians, the company set up a website, posted a huge data set of movie and subscriber information, and offered $1 million to anyone who could improve its algorithm by 10 percent. Groups from around the world entered. For Netflix, the price of the prize was small compared to the value of the product it received.

Of course, a group of people can also act as a destructive, short-sighted, and even irrational mob. But that alone is not a valid reason to limit direct democracy. Political representatives too can act in these ways. And so can business leaders. Our world would be a different place if this were not true. The task of a Principled Society is to create transparent, intelligent, sustainable, stable, and fair systems for self-governance and economic and financial activity, and to combine these with healthy cultural norms, an embrace of science, and an educated membership. Under these conditions, we can expect humans to be at their best."

Endorsements

"If we are to attain social and environmental sustainability, and an economy that fosters trust and cooperation, we need new approaches. This book provides reasoned proposals that synthesize aspects of social entrepreneurship, peer-to-peer practices, participatory governance, and solidarity economics. Its models for building new institutions for sustainability deserve to be read and widely discussed."

"John Boik thinks from the ground up in proposing wise approaches to the urgent crises of our age. His accent is on the local, and on a plan that is genuinely democratic in intent and function. He makes clear that intelligent solutions, free of political ideology, are indeed possible. Every member of the economy has reason to participate in building our “shared wealth,” and here is a means to do that to scale."

"Creating Sustainable Societies offers a practical roadmap and manual for redesigning our economies and money systems. The birth of a new economic paradigm based on well-being and happiness is emerging, and John Boik’s work will help support and accelerate this transition. We need new ideas and alternatives to the current cancerous debt-based money system that is literally killing the genuine wealth (well-being) of communities and nations. Having studied the nature of money and banking systems for over 20 years, I find that John’s work is one of the most refreshing, entrepreneurial, and pragmatic models that I have seen that can be readily adopted in local economies around the world."

- Mark Anielski, Adjunct Professor, Corporate Social Responsibility and Social Entrepreneurship, School of Business, University of Alberta; Author, The Economics of Happiness

Discussion

New Corporate Models

John Boik:

"The Principled Business model is intended to rectify weaknesses within the current corporate model, summarized below. The critique here focuses on for-profit, publicly held corporations, rather than nonprofit or privately held ones.

* Weakness 1: Profit is the prime motivator.

The prime motivator of the current corporate model is profit, or more generally, narrow self-interest. Managers receive strong incentives to maximize corporate profits and shareholder wealth. As noted in previous chapters, human behavior can be influenced by a wider spectrum of motivators, some of which are more effective at encouraging pro-social behavior. Narrow self-interest, when over-emphasized, can be corrosive.

Principled Businesses are legally organized as one of the new types of socially responsible corporations that are now available in many states. These new corporate forms expand the purpose of a corporation beyond profit maximization; they expect the corporation to produce social benefits as well. Thus, other motivators besides self-interest are built into the model. Self-interest is not eliminated, however. Increased profits can lead to higher salaries, for example, subject to certain limitations. And profits can be used to expand and improve a business.

* Weakness 2: The corporate model leads to hyper-inequities in the concentration of income and wealth.

The current system allows wealth to become hyper-concentrated in a tiny minority of investors, executives, and corporations. Concentrated wealth harms an economy, raises moral issues, and sets up unfair political advantages.

Principled Businesses are not likely to cause excessive inequities in the concentration of income and wealth. They are funded primarily by a profit-neutral system of interest-free loans. In addition, upper limits are set for CEO salaries, relative to the lowest-paid workers. Thus, neither a mega-wealthy investor class nor a mega-wealthy executive class is produced.

* Weakness 3: Corporations can become monopolies or “too big to fail.”

Despite regulations, corporations can grow large enough to act as monopolies. Monopolies stifle competition and help to hyperconcentrate wealth. Corporations can also grow large enough to become “too big to fail.” Moral hazards can be produced when a corporation knows it is too big to fail and will be bailed out by the federal government. For example, analysts cite the moral hazard produced by bailouts of large banks, making them more likely to exhibit risky behavior.(EFJT09)

Members can prevent the growth of Principled Businesses to the point of monopolies and “too big to fail.” Keep in mind that a Principled Business is close in spirit to a nonprofit. Nonprofits depend on public donations to cover ongoing operating costs, and the public retains substantial influence over their ongoing behavior. If a nonprofit acts in a fashion that harms the public, the nonprofit risks loss of future funding. Furthermore, their books and IRS filings are typically open to public scrutiny.

A somewhat different system of influence is used with Principled Businesses. Principled Businesses are privately owned and self-supporting through their revenue. When one seeks an interest-free startup loan, it must submit a business plan to the members. The plan explains how loans and resulting revenues will be used, and identifies the firm's desired future size. If members like a submitted plan, they can choose to fund it.

Once funded, the business plan becomes part of the contract with the Society, and the business must adhere to it. There is some flexibility, however. A firm has opportunities to amend its plan as conditions change, subject to membership approval. Note that a Principled Business could still become quite large and profitable without becoming either a monopoly or too big to fail. Issues of size would become important only for the rare Principled Business.

* Weakness 4: Corporations lack transparency.

The current corporate system is marginally transparent. Publicly traded corporations are not obligated to reveal substantial aspects of their behavior. They do produce quarterly and annual reports, and file documents with the SEC and other regulators, but these represent a limited form of transparency. For example, corporations can hide information on political activities and beneficial ownership.(EvdDdW+11; DFC12) Nearly one-third of shareholder resolutions in 2012 will ask companies for more disclosure about their campaign spending and lobbying.(THBD12) Corporations are also not required to report some types of salary information, or information on social impacts.

Principled Businesses are radically transparent. As noted, they submit their business plans to the membership. Further, they must submit annual reports that include a variety of data private and public corporations are not required to file. This includes information on salary distributions, use of revenue, and in some cases externalized costs and social and environmental impacts.

Large corporations can use their cash and other resources to influence public elections and legislative activity. This sets up an unfair political advantage, as common citizens and grassroots groups lack the same resources.

Principled Businesses are prohibited from spending money to influence elections or legislative activity, except as provided in their business plans. When expenditures do occur, they are reported."